Definitions of the above trading terminology:

​

Sharpe Ratio: A negative Sharpe ratio means the portfolio has underperformed its benchmark. All other things being equal, an investor typically prefers a higher positive Sharpe ratio as it has either higher returns or lower volatility. So, what is considered a good Sharpe ratio? 

• Greater than 1 is considered good

• Higher than 2 is rated as very good

• A ratio of 3 or above is considered excellent

• A ratio under 1 is considered sub-optimal

​

Sortino Ratio: The Sortino ratio is used as a way to compare the risk-adjusted performance of programs with differing risk and return profiles. In general, risk-adjusted returns seek to normalise the risk across programs and then see which has the higher return unit per risk. So, what is considered a good Sortino ratio? 

• A good Sortino Ratio is one with a score of 2 or above

​

Profit Factor: The right profit factor depends on the amount of risk you are willing to endure because there is always a trade-off between assumed risk and payoff. When you want as much profit as possible, be ready to endure more risk. A good profit factor in trading has a value of more than 1.75 but not more than 4.

• If the Profit Factor of a strategy is 2.28, than this indicates that for every $1 invested in this strategy, your will be able to earn $2.28. 

​

Win Rate: Many retail traders think that a good win rate for profitable traders is close to 100%. However, in reality, the win rate for most successful traders lies somewhere between 45% to 65%. In fact, any win rate of over 50% is considered to be an amazing for traders because it means your are making consistent profits, and winning more that your are losing.  A mistake which new traders make is to "make a profit in every single trade". However, that goes directly against the whole concept of trading. The goal of trading is to make money overall, not to make money in every single trade.

​

​